1 eFX Daily colour

1.1 FX Spot

1.1.1 Overview

By Jan Sluis-cremer - Institutional Sales Specialist (Feb-06)

The rand continuing to make gains and trading down to 18.52 on the back of a slightly weaker dollar and ahead of President Ramaphosa’s state of the nation address later this evening. Investors also keeping a close eye on the China and US trade disputes. On the day 18.52 to 18.68 traded.

Locally all eyes will be on the President this evening in his first SONA under the government of national unity. News reports are suggesting President Ramaphosa is not going to use this platform to get into a war of words with the US, but rather to outline the way forward for the country under the GNU.

Fed officials continue to sing off the same hymn sheet. Yesterday saw the Richmond Fed President, Thomas Barkin, say that Fed officials need more time to understand the current economy and inflation amid elevated uncertainty around President Trump’s policies.

In the Asian session this morning, most currencies came under some pressure as the dollar steadied, while market participants remain side lined over the growing trade war between China and the US. The Japanese yen continues to rally as the BOJ talked up the possibility of higher interest rates. The dollar index was slightly higher earlier with focus now squarely on tomorrows US non-farm payroll numbers.

The rand starts the day off at 18.58 to the green back. For now ranges persist. 18.40 to 18.70 trades. Only a break and close below 18.46 which is also the 55DMA do we look for a test of 18.10 again. Against the crosses:

  • EUR/ZAR kicks off at 19.30
  • GBP/ZAR starts at 23.20

On the data front the day gets underway at midday local time with the Euro zones December retail sales numbers. 13:00 we return to local shores for our December electricity consumption and production numbers. 14:00 focus turns to the BOE for their interest rate decision. Rates are expected to be cut again by a further 25 basis points. The day is finished off in the US at 15:30 with weekly jobless claims.

1.1.2 US

(Feb-03) The dollar surged while equity markets and digital currencies plunged after US President Donald Trump announced significant tariffs on imports from China, Canada, and Mexico. This move, the most extensive act of protectionism by a US president in nearly a century, is expected to have widespread effects on inflation, geopolitics, and economic growth. The tariffs, affecting trade worth about $1.3 trillion, will raise the average US tariff rate significantly and could reduce US GDP by 1.2% while increasing core PCE by 0.7%. Mexico and Canada, heavily reliant on exports to the US, face severe economic risks, while China’s impact is more manageable. All three countries have vowed to retaliate, potentially expanding beyond tariffs. The overall impact on the US economy is uncertain, but significant disruptions are anticipated.

  • Key Points
    • Tariffs Announced: 10% on China, 25% on Mexico, 25% on Canadian non-energy goods, 10% on Canadian energy.
    • Economic Impact: Affects $1.3 trillion in trade, 43% of US imports, nearly 5% of US GDP. Raises average US tariff rate from ~3% to 10.7%. Potential reduction of US GDP by 1.2%, increase in core PCE by 0.7%.

(Feb-04) Currency markets are reacting strongly to President Trump’s tariff measures. The US dollar rebounded after China imposed retaliatory tariffs, signaling serious intent and raising concerns about further US counter-retaliations. This situation suggests higher US rates, increased FX volatility, and a stronger US dollar in the long term.

(Feb-04) Oil markets are under pressure as the US and China engage in a trade conflict, risking year-to-date gains for Brent and WTI. The temporary halt on trade escalation with Mexico and Canada negatively impacted crude by removing a levy on Canadian crude flows. The US-China tariffs could slow global growth, reduce energy consumption, and decrease risk appetite. Additionally, OPEC+ is eager to increase oil supply, adding further headwinds for crude prices.

(Feb-06) The yen continues to make inroads against the dollar. Bank of Japan’s Naoki Tamura suggested interest rates might reach 1% in late 2025. The yen also saw increased demand from hedge funds amid volatile currency trading.

1.1.3 EU

(Feb-04) EUR/JPY is expected to decline further due to geopolitical risks and a favorable rate gap for the yen. Beijing’s tariff retaliation supports haven currencies like the yen and pressures the euro, exacerbated by Trump’s tariff threats against the EU.

  • The US has a trade deficit with both the EU and Japan, but Japan is less affected due to a smaller trade bill with the US. Geopolitical risks and narrowing rate differentials favor the yen, with the ECB’s restrictive monetary policy stance allowing for more easing. The rate differential between the euro zone and Japan is 2.25%, narrower than most G-10 counterparts, putting pressure on EUR/JPY to align with the rate gap.

1.1.4 China

(Feb-04) China has announced an investigation into Google for alleged antitrust violations and imposed new tariffs on various US products in response to President Donald Trump’s 10% tariff on Chinese goods. The new Chinese tariffs include 15% on coal and liquefied natural gas, and 10% on oil and agricultural equipment from the US. China criticized the US’s unilateral tariffs as a violation of World Trade Organization rules and harmful to economic cooperation

1.1.5 SA

(Feb-03) S. AFRICA CAN WITHHOLD MINERALS IF US WITHHOLDS FUNDS: MANTASHE

(Feb-04) Eskom has officially suspended load-shedding as of February 2, 2025, after resolving recent breakdowns. Electricity Minister Dr. Kgosientsho Ramokgopha announced the suspension and praised Eskom’s teams for their efforts. He apologized for the disruptions and assured residents of continued efforts to provide reliable electricity.

(Feb-06) Key events:

  • The State of the Nation Address (SONA) today at 19h00 SAST is expected to support an unchanged medium-term budget. Inflation targeting may be discussed, with the Reserve Bank advocating for a lower target to boost competitiveness, while the National Treasury is concerned about economic impacts. The Social Relief and Distress grant might be extended, potentially increasing recipients and costs. Additionally, the government has proposed a 5.5% wage increase for public sector workers, which is above the budgeted amount.
  • The SA Budget will be delivered on 19 February, with weak state finances being a major concern. Fiscal slippage is a trend, with the debt-to-GDP ratio projected to peak at 75.5% in 2025/26. Lower inflation and GDP could worsen fiscal ratios, and the budget deficit for 2024/25 is expected to exceed 5%. Overall, state finances remain weak, posing a risk of further fiscal slippage.

1.1.5.1 eFX Volumes

  • Overall volumes

We saw volumes under shot just below the recent ADV yesterday as the market awaits SONA today.

  • Price to volumes
  • Liquidity hours across currency pairs
  • Currency positions

1.1.5.2 USDZAR levels

  • (Jan-31) There is still not enough ZAR supportive information, as such, we do not expect to trade below 18.40 anytime soon.
    • President Trump also threatened to impose 100% tariffs on the BRICS countries should they go ahead and move away from using the dollar.
  • (Feb-03) SA under pressure today following President Trump’s comment about the expropriation bill. We now see the ZAR levels at 19 and 18.60.
  • (Feb-04) Our range still at 19 - 18.60 with 18.60 being a critical pivot point for ZAR as it would be a confirmation of moderation in the rand.
    • We are seeing most activity at 18.70.
  • (Feb-06) The break below 18.60 seen yesterday has not yet been confirmed and can be considered as a knee-jerk reaction. We also note that currently we are trading below 18.60 given ZAR supportive factors at play:
    • Gold at all time highs, now at 2869.65.
    • DXY trading lower, now at 107.755.
    • JSE Top 40 near all time high at 78,558.2.

1.1.5.3 USDZAR spreads

  • (Jan-31) Good news continue to ran away from ZAR as we are seeing the market de-risk at the back of Loadshedding and Trump comments.
    • Spreads remain elevated
  • (Jan-31) ZAR extend gains today after news that tariffs on Mexico would be delayed for a month. We are now trading below the 18.80 lvl and are waiting for a break below 18.60 which would act as confirmation of easing pressure on the rand.
  • (Feb-06) Spreads remain elevated

1.1.6 Key events this week:

  • SA SONA, Thursday
  • Eurozone retail sales, Thursday
  • UK rate decision, Thursday
  • Mexico rate decision, Thursday
  • India rate decision, Friday
  • Canada unemployment, Friday
  • US nonfarm payrolls, unemployment, University of Michigan consumer sentiment, Friday

1.2 FX Volatility Update

1.2.1 Update

By Thuto Mukena - Institutional Sales Specialist (Jan-31)

  • Overview

It’s been a data-packed, headline-heavy week, with risk conditions swinging in all directions. The ZAR has had a choppy week, yesterday’s 25bps SARB rate cut sent the local unit in the red territory, reversing some of its prior session’s gains, leaving the pair to close the week at R18.5688/$.On the vol front, the 1-week volatility risk premium has compressed deeper into negative territory, highlighting that the market mispriced and underpriced this week’s risk conditions. USD/ZAR Implied vols also hover lower as we brace for an exit for this week , the 1W USD/ZAR implied vol tenor no longer trading at a premium over 1M. The tenor closed yesterday’s session 1.87 vol p.p below opening levels.

  • EM & G10

EM pairs saw mixed spot performance on the day, while most G10 currencies were offered, closing the session weaker. On the implied vol front, G10 implied vols largely tracked spot moves, with USD/CAD and USD/JPY 1-week implied vols standing out as the exceptions, firming by 145bps and 64bps from the open. Main event on the day was the ECB rate decision, EUR/USD 1-week implied vol dropped by 62bps, declining alongside spot in the aftermath of the ECB’s 25bps rate cut, which set the deposit rate at 2.75%. Key take aways from the press conference is that the central bank maintained a data-dependent stance on future cuts, emphasizing that policy remains restrictive while also flagging concerns about growth risks in the region.

1.3 Africa

1.3.1 Update

By sizwe Mfayela - Institutional Sales Specialist (Feb-06)

  • Egypt
    • Egypt’s Jan international reserves – gold and FX, rose to $47.26bio vs $47.1bio in Dec. Gold reserves stood at $11.41bio whilst FX reserves were $35.82bio.
  • Kenya
    • The Central Bank of Kenya cut interest rates by 50bps to 10.75% yesterday. The CBK expects CPI to stay contained below the 5% midpoint with a stable exchange rate in the near term, with the rate cut aimed at boosting the East African nation’s economy.
    • Finance minister John Mbadi says Kenya has initiated talks with the IMF to secure a new lending programme when the current one lapses in April. Mbadi says Kenya needs support from the IMF to keep the country’s economy on track, following a rise in debt service costs to increased borrowing over the past few years. Kenya is also looking at other funding options, including issuing a Eurobond.
  • Mozambique
    • Patrick Pouyanne, TotalEnergies CEO, expects EXIM bank to finalise the approval of a $4.7bio financing facility for the Mozambique LNG project in the next few weeks.
  • Nigeria
    • President Bola Tinubi seeks parliamentary approval to raise the country’s 2025 total spending budget to NGN 54.6trio ($36.5bio). part of the increased spending will be allocated to the recapitalization of state-owned development banks. Nigeria’s law makers are yet to approve the request.
    • Nigeria 1Y t-bill auction was oversubscribed, NGN 500bio on offer against NGN 3.15bio bids received and NGN 619bio allocated at 20.32%

1.3.2 Economic data

Economic data releases